Top False Claims Act Developments
Ethan P. Davis, Tamra Moore, Matthew V.H. Noller, King & Spalding LLP
This week’s top False Claims Act (FCA) developments include: two recent DOJ settlements resolving allegations of small business contract fraud and misuse of COVID-19 assistance programs; and a decision from a New York federal court dismissing a qui tam action under Fed. R. Civ. P. 9(b).
1. Company agrees to pay record settlement amount relating to claims that it accepted government contracts intended for small businesses owned by service-disabled veterans
Overview: On February 23, 2022, DOJ announced a $48.5 million FCA settlement to resolve allegations of manipulation of federal contracts reserved for small businesses owned by service-disabled veterans. This is the largest-ever FCA settlement based on allegations of small business contracting fraud.
The Settlement: According to DOJ’s press release: As part of the settlement, TriMark USA, LLC, admitted that it had caused the government to award contracts reserved for small businesses owned, controlled, and operated by U.S. veterans who became disabled during their military service. TriMark admitted that from 2011 to 2021, it used three small businesses to submit bids for work that was instead performed by TriMark, which was not eligible for the contracts. The allegations against TriMark were originally raised in a qui tam lawsuit in which the government intervened.
DOJ’s press release contained unusually strong language, and included statements from two United States Attorneys; the Inspector Generals of the Department of Veterans Affairs, the Department of Defense, and the General Services Administration respectively; the Procurement Fraud Director of the Air Force Office of Special Investigations; and the General Counsel of the Small Business Administration.
Our Take: This resolution, accompanied by the strong statements made by several officials across different federal agencies, illustrates the government’s emphasis on policing alleged fraud related to small businesses and veterans.
2. Department of Justice settles FCA claim related to improper Paycheck Protection Program loan
Overview: On February 11, 2022, DOJ announced a $31,000 FCA settlement related to allegations that the defendant improperly obtained more than one Paycheck Protection Program (PPP) loan. Despite the small size of the settlement, the government used its announcement to declare its intent to pursue aggressively violations of COVID-19 assistance programs.
The Settlement: The government alleged that Zen Solutions Inc., a Virginia staffing-services company, applied for and received two PPP loans in 2020, while falsely certifying that it would not receive more than one loan before December 31, 2020. The allegations were originally raised in a qui tam lawsuit in which the government intervened. Although the settlement amount is small, DOJ’s announcement included a statement by the acting head of DOJ’s Civil Division, who declared that DOJ “is committed to pursuing those who knowingly violated the requirements of the PPP or other COVID-19 assistance programs and obtained relief funds to which they were not entitled.”
Our Take: The settlement shows that DOJ has continued to prioritize investigating fraud in the PPP and other COVID-19 assistance programs.
3. New York federal court dismisses qui tam complaint under Rule 9(b)
Overview: On February 7, 2022, a federal court in New York dismissed a qui tam action for failure to plead fraud with particularity under Fed. R. Civ. P. 9(b). This decision implicates a circuit split related to Rule 9(b), which is the subject of three petitions for certiorari that we have discussed in previous posts.
The Decision: The relator alleged that the defendant, a New York nursing-facility operator, violated the FCA by submitting Medicaid and Medicare claims while violating New York’s COVID-19 mask mandates and social-distancing guidelines.
The district court dismissed the relator’s claims under Rule 9(b). Applying the rule adopted by the Second Circuit, the court held that Rule 9(b) “does not require that every qui tam complaint provide details of actual bills or invoices submitted to the government.” Nevertheless, the court continued, a relator must allege facts that lead to a “strong [inference] that specific claims were indeed submitted and that information about [the details of] the claims submitted are peculiarly within the opposing party’s knowledge.”
The court found that the relator did not satisfy this requirement because she did not plead (1) the identity or position of any employee who submitted false claims, (2) the number and dollar amount of the false claims, or (3) personal knowledge of any fraudulent billing practices.
This holding implicates a circuit split over how Rule 9(b) applies to FCA claims. As we have discussed in previous posts, some circuits require relators to plead specific details of allegedly false claims, while other circuits are willing to infer the submission of false claims based on other allegations. The Supreme Court is currently considering three cert petitions presenting this issue, including one in which the Court invited the Solicitor General to express the views of the United States.
Our Take: This decision illustrates the importance of the circuit split over how Rule 9(b) applies to FCA actions. Rule 9(b) is a threshold pleading requirement in every FCA case, so how courts interpret Rule 9(b) often determines whether or not qui tam actions may proceed to discovery.
In the News:
D.C. federal court casts doubt on $2.85 billion qui tam action alleging violations of a construction contract with the U.S. Army - At a February 22, 2022 hearing, District Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia expressed reservations as to whether five relators had adequately alleged that ManTech Telecommunications and Information Systems Corp. had violated the FCA by breaching a $2.85 billion repair contract with the U.S. Army. Judge Jackson nonetheless indicated that she would allow the relators to amend their complaint to add additional factual allegations.
Ethan P. Davis is a partner in the Special Matters and Government Investigations Practice Group in the firm’s San Francisco office, Tamra Moore is a partner in the Healthcare Practice Group in the firm’s Washington, D.C. office, and Matthew V.H. Noller is a senior associate in the Trial and Global Disputes Practice Group in the firm’s San Francisco office.